It can happen over time due to poor circumstances and a lack of fixing little problems that grow. It can happen all at once when you’re hit with mammoth costs. However it happens, you need to get your hands on the reins as soon as possible. Any kind of financial difficulty can become a debt spiral before you know it. Prevention is the best key to your success, but that doesn’t mean you can’t fight your way out, either.
Get yourself a safety net
As we’ve said, prevention is your best possible approach to avoiding the debt spiral. So we’re going to spend a little time outlining how you might be able to stop the crisis before it even begins. The key here is to save. Not just to scratch away a little money here and there. You need a saving strategy. In particular, you need a goal and a method. Your goal should be putting together an emergency fund. That is, you want about five months’ worth of income put aside to help you deal with emergencies. The method is to set aside a portion of money every paycheck. Not at the end of the paycheck, but as soon as you get it. Put it in a different account altogether so you can fight the urge to spend it.
Review your budget
If you’re unable to prevent yourself from falling into some pretty serious financial difficulty, now is the time to start changing everything up. That begins by getting a proper look at your budget. Take the time to look over all your incoming money and outgoing expenses over the last month. Set aside your rent as well as bills you’re unable to negotiate. For others, like subscriptions or internet costs, you need to either cut down or cancel entirely. Then, looking at your groceries, start sourcing less expensive alternatives and collecting coupons and vouchers. You need to develop a keen eye to start being frugal.
Don’t close off your credit just yet
When people fall into debt, they might have the sudden urge to cut up and cancel all their credit cards and open lines of credit. Stop what you’re doing for just a moment. It’s true that you don’t want to be reckless in using existing credit. However, when you’re in a real financial crisis, you might find need of that credit for short-term access to cash. Without it, you may very well be left without options. If you’re not in trouble just yet, make sure you’re trying your best to keep your credit score healthy. Get a look at your record. Find any accounts that aren’t current and get them current. See if there are any erroneous entries that need disputing, too. That happens a lot more often than you might think.
Update your creditors
If you do find yourself in financial difficulty, don’t keep quiet about it. If you just let payments continue to be late or not come at all, your creditors will go into collections mode. When that happens, your options shrink immediately. Meanwhile, if you stay open with them, more options might stay open. Options like loan modification to cut down on your mortgage payments and freeze your interest. Hardship restructuring with your loans from the bank. Even consumer credit counseling to help you create a more reasonable payment plan from your creditors. Don’t assume the worst of those creditors. Many of them want to see you both make it out of this with as little fuss as possible.
The context of your current financial crisis also plays a big hand in how you deal with it. For instance, the most common reason for financial trouble is medical costs and the costs for being out of work after them. But, if they happen in the workplace, you may be entitled to workers’ compensation, so take advantage of that. Or if they’re someone else’s fault, a civil lawsuit might just be the ticket to covering all those costs. You shouldn’t have to pay when you weren’t the one responsible. So consider keeping in touch with a team like Robins Cloud should you ever have need of them.
Be careful if you’re playing the credit shuffle
If your debt is building up, you may be tempted to start getting a little tricky with it. To start moving credit from one place to the other in order to be able to deal with it more easily or stem the tide. Debt consolidation, for instance, can work. But you should be wary in how you use it. For one, if you have poor credit, they might have stipulations they’re not going to admit up front. Stipulations that could see tighter deadlines than you expected. You should also pay attention to whether your existing debts have interest caps on them. You don’t want to end up moving them somewhere without such a cap. So be careful and make sure you read all the terms and conditions of any debt movement action you think to undertake.
Avoid quick fixes
Of course, it’s always a good idea to read the terms and conditions. But when you’re in debt, it’s more important than ever. Failing to pay attention to the fine print is what can get you in even more trouble than before. Particularly when it comes to supposed quick fixes like payday loans. Or low-interest loans that could instead end up taking your car or your home. The truth is that the loans that are easiest to get usually have the highest interest rates. Those that promise no interest within a certain amount of time usually restrict payments so you can’t take advantage of that grace period. When you’re vulnerable, you have to be even more watchful of those looking to take advantage.
Find yourself some new income
If you have the free time and the ability, it’s very much worth considering finding yourself another opportunity to make some money. You don’t necessarily have to find yourself another employer, either. You can work a lot more flexibly if that’s what works better for you. You can look into side hustles like starting your own business of buying and selling online. If you have any writing skills, you can get into writing online. Whether you’re content marketing or blogging with an affiliates scheme, there are ways to monetize that talent with words.
If you have assets, use them
Even better than having an ability to write and work from home is having assets to capitalize on. For instance, if you have a car, then apps like Uber have opened up possibilities for you to really earn at a decent rate. You might also wish to drive as a courier if you’re not too keen on driving strangers around. If you want passive, instead of active income, then consider how your home can help you. You don’t necessarily have to let in a tenant. There are just as many people willing to pay for storage space. Whether it’s in your loft, your garage, or even leaving their car on your parking space. The last one can be particularly profitable if you live near an airport or a train station. Of course, your home can also be downsized if you need the cash and the considerably easier cost of living afterward.
When you have no other options
We’re not going to be one of those that pretends that you’ll always be able to find your way out of a debt spiral. Sometimes, you just don’t have the means or the good fortune to do so. In those cases, you have to consider the final option. However, while bankruptcy is serious, it’s not the end of the world. Contrary to popular belief, you won’t be cut off from using your credit for decades.